SEARCH NEWS:

 

Kerkorian Succession Issue Highlighted by Merger Offer

by Liz Benston

LAS VEGAS -- If MGM MIRAGE buys Mandalay Resort Group, billionaire dealmaker Kirk Kerkorian could end up controlling the majority of megaresorts on the Las Vegas Strip.

But the succession plan for Kerkorian's 57 percent interest in MGM MIRAGE, which could put his shares in the hands of his two daughters, Tracy and Linda, is private and experts appear to have little idea who could end up controlling the largest and most powerful casino company in the world in the event Kerkorian passes away.

Kerkorian, 87, owns 57 percent of MGM MIRAGE shares through Tracinda Corp., a private company that incorporated in Nevada in 1976 and maintains offices in Beverly Hills, Calif. Tracinda Corp. officials declined comment on Kerkorian's plans, saying they wouldn't discuss his "personal business."

"If I'm a shareholder, I think I'd kind of like to know that information," said Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. "It's a legitimate and important question."

The two companies apparently were still talking as of late Thursday, sources said. MGM MIRAGE's $7.65 billion offer for Mandalay expires at 5 p.m. today.

"My understanding is that they're somewhat in a holding pattern right now," Deutsche Bank Securities gaming analyst Marc Falcone said. "My sense is that the (Mandalay) board is assessing the price. My belief right at the moment is that there could be a deal."

A source familiar with the discussions, who declined to be named, said Mandalay was still considering the offer.

"I think the time has come (for a decision)," the source said. "Don't underestimate the complexity of a price discussion. You have huge amounts of information to process ... including the value of the brand name."

Another source familiar with the discussions, who declined to be named, said the talks don't appear to be over yet.

"There are still issues outstanding other than price," the source said.

MGM MIRAGE stock on Thursday rose 8 cents to $47.60 and Mandalay shares fell 16 cents to $68.42. The markets are closed today.

In the meantime, analysts and investors say information about Kerkorian's future plans isn't on their radar screen because it's peripheral to other, more important issues facing the company.

"From an investor's point of view, there are too many other issues to worry about," said New York-based fund manager Mario Gabelli, who has followed Kerkorian's career since the late 1960s and whose investment company owns about 500,000 shares of MGM MIRAGE as well as shares of Mandalay.

"The big picture for investors is when a company goes from $1.2 to $2 billion in cash flow, is that cash flow going to grow?" he said. "What happens when there's another oil shock? What happens if there's another terrorist attack?"

Locals may be curious about whether outsiders or unknowns will end up owning Kerkorian's shares, Gabelli said. Ultimately, however, many other near-term factors are more important.

Those factors include whether MGM MIRAGE will be able to build a casino in the Chinese province of Macau, how the United Kingdom opens its market to more casinos and the spread of Internet gambling, he said.

"You can't just look at MGM on the Strip in Las Vegas. MGM is in the global marketplace," Gabelli said.

Falcone agrees.

"I don't think investors are focused on that at this moment," he said. "Kirk's been around the gaming industry a long time. He's got a very solid management team with expertise in gaming both at his gaming company and the CEO of his studio company (Metro-Goldwyn-Mayer). He's surrounded by people exceptionally knowledgeable about the industry and his interests."

MGM MIRAGE spokesman Alan Feldman said he's not aware that the issue of how Kerkorian's shares would be distributed has ever been raised with analysts or investors. Nor has the company ever informed the public about the succession plan, which is private, he said.

Kerkorian, one of the country's richest men, avoids the media spotlight. He rarely gives interviews though his business dealings involving the buying and selling of hotels and companies make front-page news. His personal life made a rare appearance in the news in 2002 when his ex-wife sued for $320,000 a month in child support for her then 3-year-old daughter, Kira.

Ray Cheesman, a bond analyst with Jefferies & Co., calls Kerkorian a "strategy guy" who prefers dealmaking and leaves the day-to-day management of MGM MIRAGE up to company executives.

A succession plan in place at least a decade ago distributed Kerkorian's shares to his daughters, said Cheesman, who said he saw the previous plan.

"MGM MIRAGE has one of the finest, strongest and deepest management teams in the industry," he said. "Those guys aren't going anywhere and they're running the company. (Kerkorian) pushes people to be creative."

Other gaming analysts, who declined to be named because of the ongoing merger talks between MGM MIRAGE and Mandalay Resort Group, said they believe Kerkorian guides the company on a macro level but doesn't actively manage it.

"I'm not saying (succession) is not going to be an issue, but he's probably not that involved in the day-to-day operations," one analyst said.

Bill Eadington, director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno, said Kerkorian's situation may eventually have some parallels with that of casino boss William Harrah, who died in 1978.

While estate tax liabilities forced Harrah's heirs to sell the company to Holiday Inn, Kerkorian may well have legal mechanisms in place to avoid that kind of outcome, Eadington said.

It makes sense that MGM MIRAGE shares could be sold over time to individual and institutional investors as a way of liquidating a portion of his wealth so that heirs could meet tax obligations, he said.

"I am not sure if it is a big deal to anyone but the heirs," he said. "This kind of concentrated ownership will probably be replaced by less concentrated ownership over time."

As it did with Harrah's, the large block of ownership could permit another company, even one outside the gaming business, to eventually acquire MGM MIRAGE, Eadington said.

"Corporate structures and actors can morph pretty quickly," he said.

Copyright © Las Vegas Sun. Inc. Republished with permission.

< Gaming News